“The Cruel World of Claims-made-and-reported Policies of Insurance”

Those are the words of Justice Quinn of the Ontario Superior Court of Justice in Certain Underwritersat Lloyd’s of London v. All Spec Home Inspections et al., 2013 ONSC 7149.

In this case the respondent was a self-employed home inspector who had a professional liability insurance policy through the Applicant which was renewed annually.

The respondent carried out an inspection in July 2010 at the Swallow residence and produced a report and photographs. On August 16, 2010 Paul Mambella was performing work in the attic of the Swallow residence when he came into contact with an exposed, energized and bare copper wire. He was electrocuted and died. A Ministry of Labour investigation ensued immediately in which the respondent was involved.

In August 2010 the respondent’s insurance policy came up for renewal. The Application contained the following questions which he answered “no” to:

22.             In the last five (5) years, has a claim ever been made against the applicant?

If YES, please provide the following details...

23.             Is the applicant aware of any situation or circumstance which may in the future result in a claim…

Below these questions the following exclusion appeared:

Without limitation of any other remedy available to the insurer, it is hereby agreed that if there be knowledge of any such fact, circumstance or situation, any claim or action subsequently emanating therefrom is excluded from coverage under the proposed insurance.

The Ministry of Labour conducted an inquest in late August 2011. On September 10, 2011 the respondent submitted a renewal Application and again answered “no” to the above questions.

In November 2011 the widow and children of Mambella commenced an action. After consulting a lawyer the respondent notified the applicant. The applicant brought this coverage Application.

The Policy is a claims-made-and-reported insurance policy.  The applicant argued that it relied on the representations made by the respondent in the application in renewing the policy. It further argued that the policy excluded coverage in the circumstances and the exclusion is clear and unambigious and thus results in there being no coverage available to the respondent.

 Citing the Ontario Court of Appeal in Fellowes, McNeil v. Kansa General International Insurance Company Ltd. et al., 2000 CanLII 22279, Justice Quinn held that the test whether a situation or circumstance should be reported to an insurer, as being one which may in the future result in a claim, is an objective test. The Ministry of Labour investigation and inquest “called out for notice” by the respondent to the applicant.

 
The court went onto consider how the existence of an exclusion affects the availability of relief from forfeiture under section 98 of the Courts of Justice Act, R.S.O. 1990, c. C.43. The applicant’s argument was accepted that relief from forfeiture is unavailable where a claim falls outside of the coverage due to the operation of an exclusion.   

Justice Quinn ruled in favour of the applicant denying coverage.